7. A long-term zero coupon bond with 3-year maturity, and bond’s market yield was 8% p.a. compounded semi-annually with $100 face value, the price of the zero coupon bond is and the duration of this bond is . A. $79.38, 3 years B. $79.38, 2 years C. $79.03, 3 years D. $88.90,1year E. None of these are correct
Question
A long-term zero coupon bond with 3-year maturity, and bond’s market yield was 8% p.a. compounded semi-annually with 79.38, 3 years B. 79.03, 3 years D. $88.90,1year E. None of these are correct
Solution
A. $79.38, 3 years
Step-by-step explanation:
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The price of a zero-coupon bond is calculated using the formula: Price = Face Value / (1 + r/n)^(nt), where r is the annual interest rate, n is the number of compounding periods per year, and t is the time in years until maturity.
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Plugging in the given values: Price = 79.38
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The duration of a zero-coupon bond is equal to its time to maturity, which in this case is 3 years.
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